Saturday, January 11, 2014

Goodbye Greece, Hello Hellas: Rebranding of Greece in troubled waters

 Christos Alexopoulos has written a thoughtful book, calling for the rebirth of Greece from its present decline. He represents the views of a very large part of the Greek middle class. Their hopes were for Greece’s accession to the European Union and participation in the Eurozone as a springboard for prosperity. Now with the pain of the fourth Greek bankruptcy, humiliation of the EU/ IMF workout program, massive unemployment and declining living standards from five years of recession, they feel in a quandary about their national future. They look back to Classical Greece and feel that this heritage entitles them to play a key role in Europe. 

The problem is two-fold: the failure of the developmental model of the last 30 years based on EU bootstrapping and the rapidly changing dynamics within the EU that undermine the very premises of their belief system. 

Greeks tend to see the European Union as a means of emancipation from the days of the Cold War and their relationship with the US for which they blame the Greek Junta period. For them, the European Union is everything. Membership in the Eurozone was to give them economic empowerment as a developed country, part of a unified Europe that would be on the same terms as the US, China and Russia as a major power. This viewpoint is a product of their political elite, set by Konstantinos Karamanlis on his return from self-imposed exile in France called back by the Greek general staff after the first phase of the Turkish invasion of Cyprus in July 1974. This marked the beginning of a new political era in Greece. 

Karamanlis ratified the actions of previous Dictator George Papadopoulos in abolishing the Greek Monarchy and establishing a Republic. He legalized the Greek Communist Party and generally entered into a period of expanded entitlements, hostility to private enterprise and foreign direct investments, trying to fend off the rising Pan Hellenic Socialist movement of his rival Andreas Papandreou.

His major achievement was convincing Giscard D’Etaing to support full Greek membership in the then European Community. This was meant to ensure political stability in Greece and provide economic resources in the way of transfer money for economic development. His ultimate successor, Andreas Papandreou pushed these policies to the limit, massively expanding entitlements funded by rapidly increasing national debt and socializing large sectors of the Greek economy by absorbing over indebted and failing Greek private companies already suffering from the adverse climate of the Karamanlis period. This led to an expanded state bureaucracy and speeded up the deindustrialization and decline of productive base in Greece.

The final phase before the fall was set by the Simitis government, who made membership in the Eurozone a national priority, proudly proclaiming Greece as a powerful and developed country. Eurozone membership was meant to resolve the increasingly serious problems of disturbingly high levels of public debt and weakening trade balances. The 2004 Athens Olympics Games was the showcase project of this era, despite the drug scandals of some high profile Greek athletes – tell-tale signs of the immorality of the times. 

In this belief system, the EU was good and on the rise. The US was bad and in decline. Greece in the EU was a politically and economically powerful country. The Greek political elite cultivated this belief system over the last 30 years. It never spoke honestly or openly to the Greek people on national issues. 

For example, despite months away from an IMF bailout request and full knowledge of the impending disaster from the Bank of Greece, George Papandreou – scion of an old Greek political family, ran for elections in 2009 on a platform that money was no problem. In power, he had no coherent plan to deal with the crisis and he appointed a totally inexperienced and inadequate finance minister. By the next elections in May 2012, his socialist party’s share of vote plummeted from 43% to 13%, yet even today with polls running around 5%, this party essentially controls all the key posts in the state machinery and major positions in the Greek government. The present government continues on the same path: the EU remains a nirvana, turnaround is around the corner and what happened since 2009 is just a bad dream. Greece lives today on EU/ IMF handouts in small amounts until the next IMF review.

Behind the official rhetoric of the last 30 years has been the constant decline of productive base in Greece, the waste of human resources in a poor and substandard educational system, deteriorating demographics and a rapacious political elite, who enriched themselves in various rent-seeking activities and maintained power with a bloated state sector, financed by deficits and debt. Greece entered the Euro with already very high levels of public debt on the hope that the technically lower interest rates would resolve these problems. Instead, the Euro accession fuelled consumption and consumer debt as well as a real estate and stock market bubble. The hard currency all but decimated what little was left of any productive base and destabilized the balance of payments. Eventually Greece crashed when investors woke up to the risks, public debt interest rates soared and Greece was shut out of financial markets.

The aura of prosperity proved an illusion. Bad policies, poor decisions and general incompetency of the Greek political elite caught up with reality. Still most Greeks blame foreigners (especially the Americans ….. the usual villains for almost anything in Greece by various conspiracy theories), rather than trying responsibly to understand what actually went wrong. The Greek political elite remain totally dependent on the European Union for what to do. Rather than emancipation, Greek dependency on the European Union degenerated to a bipolar disorder.

Large swathes of Greek society are being marginalized economically. Laws are now rammed through in the Greek Parliament by fast track procedure in single articles, avoiding substantive debate or objections. MP’s have been imprisoned for the first time since the Greek Junta. The government now charges people and keeps them imprisoned indefinitely pending trial. It is even passing new laws that deprive the accused of basic civil rights simply for being charged pending adjudication. Greece is a country of very limited sovereignty under full control of its EU government creditors. Effectively no elections or government can happen without prior Brussels approval.

Poorer Greeks and self-employed are revolting against the system, in the face of the high unemployment and confiscatory taxation. They see their fate on the wall, having to compete with immigrants for low-paying jobs or compelled to emigrate. The middle class in the more affluent neighborhoods especially in the northern suburbs tends to remain smugly complacent longing to be “Europeans” albeit overlooking their overtly second class EU status.

As one parish priest put it in a sermon on Greek Independence Day 2013: “we became impassioned by money and material well-being, we lost our spiritual independence and this ultimately resulted in our loss of national sovereignty and civil rights.” The Greek middle class has an entirely shattered belief system and yet no other clear alternative.

This dilemma is very apparent in Goodbye Greece, Hello Hellas. The author suggests that Greece be renamed ‘Hellas’ (in official documents ‘Greece’ is already Hellenic Republic…..) for national regeneration. He lists various issues that confront Greece but avoids any direct confrontation with the already largely discredited status-quo in Greece of the EU automatic pilot that has led to the present national predicament. As the psychology of the author reveals, most middle class Greeks still cling desperately to these concepts, hoping that they just in a bad dream. 

The sad thing is that Greece is in a negative feedback loop. It is probably the weakest and most dependent country in the Eurozone. Despite the EU/IMF workout programs and formal haircuts in private sector debt, the public debt burden remains as crushingly high as ever, only mitigated by artificially manipulated interest rates. Eurozone debt deflation economics is heavily responsible for this phenomenon, yet middle class Greeks are terrified of returning to a national currency and proper central bank. A large part of this is due to insecurity and lack of belief in their country and its people. Yet there remains the romantic and naive belief that somehow the glories of classical Greece allow them to be a shining beacon for the rest of Europe and mankind. Panayiotis Kondylis described this paradoxical viewpoint In his work on Greece back in the late 1990’s and proved prescient about the current national predicament, emphasizing lack of coherent national policy. 

The book calls for a revised constitution by a committee of academics. It is a static viewpoint and does not really offer any answers or fresh concepts. Its biggest value is that it presents a very revealing view of how Greek middle class society sees the world externally.

Greeks are ill prepared for the storm ahead in the EU where there remains a high probability of Eurozone breakup as unemployment remains high and economic growth low. Other larger countries like France and Spain have not been willing to accept the harsh conditions that Greeks are willing to endure. A spirit of nationalism is sweeping throughout Europe. This is happening even in Greece but only among poorer Greeks so far. The Greek government response has been to threaten those who openly question the present system with jail, but the polls show that this tactic has so far backfired. Public rage is growing against the ruling Greek political elite. 

The striking impression that the book leaves is how far divorced is the Greek middle class from the reality around them with a totally discredited political elite, no sign of credible fresh leadership, serious loss of valuable human resources by youth emigration and a European Union under serious challenges and threat of partial break up.

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